Supply Risk Management and Rare Earth Metals a Big Disconnect

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Minor Metals, Sourcing Strategies

I always enjoy the networking that attending conferences allows one to do. The conference MetalMiner hosted, “Managing Supply Chain Risks for Critical and Strategic Metals attempted to bring together two key parts of a supply chain the mining companies and the manufacturing end-users. And though I had hoped that  these two key audiences would mingle a bit more and identify ways of partnering where needed, I found myself disappointed that the two sides did not appear to find ways to collaborate with one another.

When you talk to the mining firms, they say that they don’t understand why the end users aren’t showing more concern about potential scarcity or supply risks for strategic metals. They (the mining companies) perceive the end users as having little to no visibility into the upper tiers of their supply chains, rather the emphasis appears to hinge on tier 1 or at most tier 2 supply relationships. Both these points may seem true, however, the rare earth mining firms would stand to gain a whole lot more if they had a deeper understanding and appreciation for how manufacturing firms look at their supply risk.

For example, on the second day of the summit, Gregg Brandyberry (ex VP of Procurement at GlaxoSmithKline and founder of Wildfire Commerce) walked the audience through a classic portfolio analysis as to how companies analyze and view their purchase profiles. Gregg explained that manufacturers need to do a better job of determining where purchases belong with the framework, with the goal of moving as much as possible into the “leverage category.  The chart below highlights the framework:

Portfolio Analysis

The conundrum then for me personally between where the rare earth mining firms believe they play on the quadrant (the common misperception amongst many suppliers involves the belief that what they provide ought to put them into the upper right quadrant or strategic). But the reality today ensures that most Fortune 500 companies have great visibility into their Tier 1 suppliers and to some extent, their Tier 2 suppliers but not throughout a chain as complicated as one in the rare earth industry Tier 1 sub-assembly provider, Tier 2 rare earth manufacturer, Tier 3 rare earth processor, Tier 4 rare earth refiner/separator, Tier 5 rare earth mining firm. It is plain naïve for the mining firms to think that a Fortune 500 companies with thousands of suppliers and hundreds of thousands of line items of purchases will aggressively go about partnering with firms at the Tier 5 level. And yet, for some Fortune 500 companies, depending on what they are producing, they will need to do just that to ensure key supply availability.

From a practical perspective, it’s almost ludicrous for an end-user to work all the way through the chain. But what this does suggest, to me at least that manufacturers need to have a deep understanding not only of their critical suppliers but critical materials in their supply chains. And without an appropriate mechanism or framework for evaluating such risks, manufacturers may find themselves in precarious positions. A little more diligence on supply risk management (from a materials perspective) could go a long way.

We’ll publish a couple more pieces from the rare earth conference later this week.

–Lisa Reisman

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